The Dynamics of Mergers and Acquisitions in Oligopolistic Industries
48 Pages Posted: 5 Mar 2008 Last revised: 15 Feb 2012
Date Written: November 30, 2011
This article embeds an oligopolistic industry structure in a real options framework in which synergy gains of horizontal mergers arise endogenously and vary stochastically over time. We find that (i) mergers are more likely in more concentrated industries; (ii) mergers are more likely in industries that are more exposed to industrywide shocks; (iii) returns to merger and rival firms arising from restructuring are higher in more concentrated industries; (iv) increased industry competition delays the timing of mergers; (v) in sufficiently concentrated industries, bidder competition induces a bid premium that declines with product market competition; and (vi) mergers are more likely and yield larger returns in industries with higher dispersion in firm size.
Keywords: anticompetitive effect, industry structure, real options, takeovers
JEL Classification: G13, G14, G31, G34
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